Opinion: innovation + exports – the keys to productivity growth

Gavin Lennox, our Group CEO, responds to the Productivity Commission’s recent draft report on 'frontier firms', the top 10% globally competitive companies, and their impact on small advanced economies. This article first appeared on Gavin’s LinkedIn page.

The Productivity Commission published their draft report on “frontier firms” stating that the “key to New Zealand’s economic future is innovation”. Furthermore, ”successful small advanced economies have large successful companies that export specialised, distinctive products at scale.” They in turn are supported by an ecosystem of small to medium businesses that provide specialised products and services with deep globally competitive know-how. Think Germany’s mittelstand for small economies.

These insights may not come as a surprise, but what is jolting is the fact that our country continues to lag the productivity performance of other comparative advanced small economies, holding back our standard of living for many years.

How many large globally competitive internationally focused companies based in New Zealand can you think of? Fonterra, F&P Healthcare, Xero, A2 Milk and Datacom – then the list drops off dramatically after that. That’s not to say there are no firms that have the ambition and capital to scale in the next tier. There are many potential upcoming frontier firms.

A few items I took out of my initial reading of the Productivity Commission’s report that resonated based on our experience supporting over 1,000 SME’s and 200 start-ups were:

• Innovation is much more than just R&D – innovation isn’t just new product or technologies, it’s how the products are commercialised through business models, supply chains, distribution and marketing. Far too little government attention and money is directed to non-R&D innovation support. 
• Without international focus and scale, you can’t drive productivity – our domestic market is too small to provide the scale to support a globally competitive company. We must think global from day one and support successful companies to go global.
• Leaders must have dynamic capabilities – it’s vital that the leaders of firms (the owners, executive and board) having the experience and ability to sense the right products for sustainable global markets then applying the right resources. These “dynamic capabilities” are the essence of strategic innovation.
• Back winners, don’t pick them – focus on where innovation potential is high, then back the brave and companies taking on global markets.

While the report noted how few frontier firms we have today, our sights must be on the next 10 years supporting the high-growth firms to go global or be part of the ecosystem supporting larger frontier firms. Tomorrow’s frontier firms are today’s high-growth start-ups and SMEs.

The report resonated with me in the context of The Icehouse Group’s purpose: to enable Kiwi business owners and start-ups to fulfil their extraordinary potential through knowledge, investment and connections. The response that we saw from Kiwi businesses pivoting and adapting during COVID showed the grit and determination of our SMEs and start-ups. What’s needed now is the support and resources to turn that innate determination towards a more global ambition.

The Icehouse is focused on building the capabilities of Kiwi business owners who have grit, the passion and perseverance, to build extraordinary firms.  Icehouse Ventures is backing the bravest Kiwi start-up founders launching global companies from New Zealand. As we say, one start-up can define a generation.

We look forward to continuing to be part of the innovation ecosystem helping to transform New Zealand’s productivity. The Productivity Commission has invited responses from the wider business community, and we plan on making a submission to support the report and encourage the government to focus on practical support that is relevant to the brave and gritty reality of building and scaling a business from New Zealand.

Follow Gavin on LinkedIn.

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